VARD Holdings reported a 15.4% YoY fall in revenue to NOK 2,489m and a 58.6% drop in PATMI to NOK 58m in 2Q15, such that 1H15 PATMI was still negative at -NOK 34m due to 1Q15’s net loss. EBITDA margin was reduced from 6.4% in 2Q14 to 1.8% in 2Q15, caused by weaker performance at some of the yards. At the end of 2Q15, VARD’s order book amounted to NOK 13.92b, down from NOK 15.63b at end 1Q15. Looking ahead, the order outlook in the North Sea is still weak, though management sees some opportunities in certain specialised segments. However, due to the shortfall in new orders, the group has started to see lower utilization at some of its shipyards, and this trend is expected to accelerate during 2H15 and in 2016. Maintain SELL with S$0.41 fair value estimate (based on 10x FY15/16F earnings) on VARD.
Weak 2Q15 results
VARD Holdings reported a 15.4% YoY fall in revenue to NOK 2,489m and a 58.6% drop in PATMI to NOK 58m in 2Q15, such that 1H15 PATMI was still negative at -NOK 34m due to 1Q15’s net loss. EBITDA margin was reduced from 6.4% in 2Q14 to 1.8% in 2Q15, caused by weaker performance at some of the yards. Though we note the lumpiness in quarterly earnings, we judge this to be below the street’s expectations as consensus net profit for the full year was NOK 275m prior to this results announcement, while our forecast was NOK 265m.
Low order intake may persist
At the end of 2Q15, VARD’s order book amounted to NOK 13.92b, down from NOK 15.63b at end 1Q15 and NOK 21.61b as at end 2Q14. New order intake was only NOK 1,204m in 1H15, compared to NOK 9,450m in FY14 and NOK 14,174m in FY13. Looking ahead, the order outlook in the North Sea is still weak, though management sees some opportunities in certain specialised segments, both within offshore and in other niche markets. The group intends to increase its focus on R&D and innovation to retain its competitive edge.
Yard utilisation to fall
However, due to the shortfall in new orders, the group has started to see lower utilization at some of its shipyards, and this trend is expected to accelerate during 2H15 and in 2016. As such, VARD has started to reduce its workforce, and restructuring efforts for its yards are underway. For instance, engineers and skilled labor from Romania and Norway have been engaged to support Vard Promar in Brazil, and additional engineering resources are being subcontracted to the Fincantieri parent group. We think the operating environment is likely to remain tough for now; maintain SELL with S$0.41 fair value estimate (based on 10x FY15/16F earnings) on VARD.
VARD Holdings reported a 15.4% YoY fall in revenue to NOK 2,489m and a 58.6% drop in PATMI to NOK 58m in 2Q15, such that 1H15 PATMI was still negative at -NOK 34m due to 1Q15’s net loss. EBITDA margin was reduced from 6.4% in 2Q14 to 1.8% in 2Q15, caused by weaker performance at some of the yards. Though we note the lumpiness in quarterly earnings, we judge this to be below the street’s expectations as consensus net profit for the full year was NOK 275m prior to this results announcement, while our forecast was NOK 265m.
Low order intake may persist
At the end of 2Q15, VARD’s order book amounted to NOK 13.92b, down from NOK 15.63b at end 1Q15 and NOK 21.61b as at end 2Q14. New order intake was only NOK 1,204m in 1H15, compared to NOK 9,450m in FY14 and NOK 14,174m in FY13. Looking ahead, the order outlook in the North Sea is still weak, though management sees some opportunities in certain specialised segments, both within offshore and in other niche markets. The group intends to increase its focus on R&D and innovation to retain its competitive edge.
Yard utilisation to fall
However, due to the shortfall in new orders, the group has started to see lower utilization at some of its shipyards, and this trend is expected to accelerate during 2H15 and in 2016. As such, VARD has started to reduce its workforce, and restructuring efforts for its yards are underway. For instance, engineers and skilled labor from Romania and Norway have been engaged to support Vard Promar in Brazil, and additional engineering resources are being subcontracted to the Fincantieri parent group. We think the operating environment is likely to remain tough for now; maintain SELL with S$0.41 fair value estimate (based on 10x FY15/16F earnings) on VARD.
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